A Matter of Trust

November 11th, 2008 - by Quincy

Political differences can often be explained by where people place their trust. Many religious-minded people claim to place their trust in God. But the old line “actions speak louder than words” may expose some double-tongues. Where do people really put their trust? Not in a happiness-in-the-hereafter context, but in the high-risk difficult decisions of life. A brief glance at our government is revealing. We have created agencies to regulate almost every aspect of our lives. Healthcare, economics, safety, education, food and water, energy, technology, and the list goes on. When there is a crisis, the valiant citizenry’s immediate response is, what is the government going to do about it? We seem willing to trust government to be able to solve every problem in our lives. Is this rational?

Consider as an example the various economic stimulus, bailout, and rescue plans that government has spawned during past few months. Almost without exception, the pundits and politicians have blamed private companies as the cause of the problem and have turned to government intervention for the solution. Even otherwise intelligent individuals who usually harbor a healthy suspicion toward government have set aside their qualms and have jumped on the bandwagon because the companies involved “are just too big to be allowed to fail.” So, hoping to escape the threatened economic doom that the pundits and politicians predict, American citizens swallow the story—hook, line, and sinker.

The true story is not hard to find. Only a few years ago, President William Jefferson Blythe Clinton decided that it would be a smart political maneuver to expand homeownership among low income families. So he used the federal control over the banking industry to force banks to make loans to people that the banks thought would be unable to make their payments. Well, the banks were right and Clinton was wrong. These low-income borrowers were not able to repay their debts, and now the entire financial industry is dry-heaving, trying to cough up the wealth that it naively expected to earn from those bad loans.

When has government ever been worthy of the people’s trust? The driving principle behind the United States Constitution was that government cannot be trusted. The Founders knew that to protect the people, government must be strictly restrained. Yet here we are, with a government that has grown to such an enormous size that it requires trillions of dollars per year to run its multifarious programs. And what are we getting for our money? Quick efficient service? Tranquility and peace? Not unless you are among the politically powerful.

So who are you going to trust? Often when I talk to people about political questions, they tell me about how horrible things would be if government didn’t have all these programs. Some common ones are: if government didn’t have a welfare program then people would be dying in the streets from starvation; if government didn’t fund public education then only the rich would be able to learn and get good jobs; if government didn’t force people to save for retirement through the Social Security program then we would have a bunch of broke old people starving in the midst of plenty; etc. To me at least these arguments sound on the one hand hopelessly naïve and on the other hand inexplicably cynical and arrogant.

Trusting government is naïve because none of these government programs actually work: there are people dying in the streets from starvation now; public education has massively failed to equalize educational opportunities—wealthy people send their kids to private schools and moderately wealthy people just move to areas where there are good public schools—the poor still aren’t taught to reason, read, and write; and the Social Security program is bankrupt. Unconvinced? You think things would be worse if government were not involved? Don’t fool yourself. Government does not produce anything, it does not generate wealth, and it does not create anything. It leeches all that it has from the private citizen. Insofar as government programs have success it is a pale shadow of what the private citizen could do without government’s interference.

Trusting government is cynical and arrogant because such trust depends on the assumption that the rest of humanity is cold-hearted and idiotic. Is it rational to think that people will go through life failing to plan for their futures, failing to seek education, or failing to care for one another? Admittedly some do, but how many of those end up that way because the policies the cynics advocate have trained them to rely on government like a domesticated duck relies on stale bread? In an effort to protect and shelter, these policies imprison people by habituating their beneficiaries to rely on government handouts. Perhaps that is the point. It’s one big joke that the political elite is playing on the rest of the nation: give the people just enough to be content so they don’t excel and become competition.

For the intelligent voters who persist in cynical, arrogant politics, perhaps a better explanation is that they are afraid to assume the moral responsibility they have as members of society to help and lift. It is easier to ignore the poor when they vote away their neighbors’ money to advance a welfare program. It is easier to ignore the elderly when they can coerce their neighbors to pay for Social Security.

Well America, you have spoken. The election results are in, and you have decided to place your trust in government yet again.I don’t share your confidence.

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When the housing market collapsed, and these individuals realized that they owed far more than their house was worth, they started defaulting on their loans. This is what caused the current financial crisis. In other words, as bad as Fannie and Freddie were, by forcing them to lower their standards and lend to people who didn’t qualify, Clinton directly contributed to the current crisis.

Quince, nice post. So often the response to arguments for freedom is that such a position is coldhearted and cruel. Like you said, opponents of liberty mistakenly assume that the argument against the coercion and servitude of government programs and regulations is the equivalent of an argument for suffering and insecurity. To them, it’s government programs and regulation and having something done to alleviate society’s ills, or no government programs or regulations and having nothing done to alleviate society’s ills. Not only is that philosophy based on the misguided and dangerous belief that it is O.K. for us to determine that we can to wrong (e.g. confiscate wealth/steal, infringe on freedom) if we’re doing it for the “greater good” (e.g. reduce suffering, improve security), it also makes the false assumption that absent government intervention, nothing or less will be done to eliminate suffering. However, not only does history and reason show that this is not the case, it illustrates the exact opposite. Not only is there greater wealth and prosperity for the productive members of society through the efficiency of liberty and the free market, but the welfare of the incapacitated and dependent individuals within society also is much better provided for.

Since I read you guys’ comments about the mortgage crisis, I figure I’ll add my two cents.

While subprime definitely had a big part in the onset of the mortgage crisis, it was actually one component of a larger problem. The bubble was already rapidly being blown when interest rates were set excessively low (below the market rate) in the late 90s, then lower after the burst of the Nasdaq bubble (’00-01). These low interest rates made credit cheap, causing real estate to boom amid skyrocketing prices. But just like the stock market bubble preceding the Great Depression, when the fed became concerned and began to raise interest rates again, they popped the enormous bubble and moves to re-lower interest rates were unable to stop it from crashing down.

So the current problems are symptoms of a fundamentally flawed monetary system, where central planners set the interest rate rather than the free market. This is exacerbated by government’s inevitably bad fiscal policy, which is enabled by the fed to feature virtually limitless spending.

So while the subprime mortgages definitely contributed to the bubble and hastened its growth, it was actually a component of the larger fundamental problem–the federal reserve’s manipulation and dictation of interest rates.